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Washington Wrap — Banking agencies quietly roll back regulations before holidays

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Washington Wrap — Banking agencies quietly roll back regulations before holidays

The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com and polo.rocha@spglobal.com.

At the regulators

Just ahead of the holidays, banking agencies moved to pare back a number of regulations.

On Dec. 21, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency announced that they would be jointly raising the threshold of the aggregate loan commitment for the Shared National Credit program from $20 million to $100 million. The threshold is expected to lift reporting burden for 82 lenders, while at the same time only decreasing the shared national credit portfolio by 2%.

The same day, the Consumer Financial Protection Bureau said it would be issuing its final amendments to its rules regarding prepaid accounts "soon after the new year," meaning that the agency will likely further postpone the rule's implementation date after already bumping it from April 2017 to October 2017.

The CFPB also moved Dec. 21 to reconsider parts of its 2015 rule regarding Home Mortgage Disclosure Act data collection. The consumer watchdog, headed on an interim basis by Office of Management and Budget Director Mick Mulvaney, said it was not planning on levying penalties on companies for errors in its 2019 data collection of 2018 data. The CFPB's control over HMDA is significant because days earlier, the Fed said it would be yielding discretion over HMDA regulations to Mulvaney's agency.

At the White House

On Dec. 22, President Donald Trump signed the long-awaited GOP tax bill into law, which would gift banks with a lower corporate tax rate of 21%.

Banks are positioned to benefit from higher bottom-line growth because of the lower rate but could also see a boost to top-line growth if the bill is able to spur increased borrowing through higher economic activity. Goldman Sachs released a note predicting that the largest banks in the country would see a considerable boost to earnings per share. Goldman added that Wells Fargo & Co. would come out on top with an 18% rise in EPS related to the lower corporate tax rate, with a 1% offset related to the bill's provision removing the deductibility of FDIC payments to the deposit insurance fund.

Immediately after Congress passed the tax bill, Wells Fargo and a number of other banks announced that they would be raising hourly worker minimum wages.

Rumors are now circulating over the future of National Economic Council Director Gary Cohn, whose tax bill is now complete. On Dec. 20, Vanity Fair reported that Cohn could leave the administration around the State of the Union address in late January, citing "a source familiar with his thinking."

At the Fed

Randal Quarles, the Federal Reserve's vice chairman for supervision, said Dec. 15 that he is recusing himself from any decisions relating to Wells Fargo. Sure enough, he did not vote on the company's "living will" this week, though he approved the seven others. All eight global systemically important banks passed the 2017 living wills cycle, although four were flagged for "shortcomings."

Quarles, whose father-in-law was chairman and CEO of a bank that Wells Fargo purchased, said though he was legally cleared to participate in any Wells Fargo matters, he is declining to do so to "avoid even the appearance of a conflict of interest."

The Fed still lacks a vice chairman. But CNBC reported Dec. 21 that the White House is considering former Federal Reserve Governor Lawrence Lindsey for the role. Lindsey was a Fed governor from 1991 until 1997 and was also director of the National Economic Council under former President George W. Bush.

Also this week, Minneapolis Fed President Neel Kashkari explained why he dissented on the Fed's rate hikes for a third time this year. He has consistently raised concerns about low inflation, but now he is also warning about the yield curve's flattening in recent weeks.

Kashkari will not be a voting member of the Federal Open Market Committee next year.

Other news

The Office of Financial Research issued a report Dec. 21 noting that while U.S. banks' systemic footprint still "dominates" importance in global finance, Asian banks have increased their systemic risk scores. The research office said the scores of Bank of China and China Construction Bank have grown enough to require a higher capital bucket due to their interconnectedness and complexity.

The report was issued after the Basel Committee updated its data for the calculation of G-SIB capital standards. JPMorgan Chase & Co. was marked as the world's most systemically important bank.

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